Deutsche Bank isn’t waiting for the latest reshuffle at the European Central Bank, let alone for a key rate-setting meeting next week, to warn of the dangers of the central bank’s super-accommodative monetary policy that has sapped the earning power of the commercial banking sector in recent years.
On Wednesday, Chief Executive Officer Christian Sewing did not mince his words at a banking conference held in Frankfurt, hometown of the ECB. “In the long run, negative rates ruin the financial system,” Sewing said, referring to the ECB’s benchmark lending rate that has been below zero for much of the past half-decade.
He added that cheaper money is doing little to nothing to help the bloc’s overall business competitiveness. It’s not enticing businesses to borrow or invest more. Rather, he said, it’s penalizing savers and distorting the price of houses and market securities. In a familiar swipe at Europe’s profligate member states, he said that further rate cuts, which are expected later this month, “may make refinancing cheaper for states, but has grave side effects.”
What he didn’t make explicit was that negative rates not only cripple banks’ ability to earn interest on their reserves, but it can cost them. Deutsche Bank is one of the most exposed to this phenomenon. Its share price has fallen by more than 75% since the ECB began driving rates lower in 2014, and has only racked up a full-year profit once in that period. To recoup its losses, it’s had to lay off thousands and look for merger partners.
Sewing was backed on stage Wednesday by Martin Zielke, head of rival Commerzbank, who decried the impact of the negative rates on banks’ profit margins. “I don’t think it is a particularly sustainable or responsible policy,” Zielke said.
After eight years of Mario Draghi’s whatever-it-takes economic stewardship, an ideological fight is underway over future monetary policy at the ECB, pitting Europe’s struggling commercial banking sector against Europe’s struggling, indebted economies. Draghi is set to preside over his final meeting this month, and a new president is scheduled to take the helm on November 1.
Draghi took over the reins at the ECB in 2011 from the fiscal conservative Jean-Claude Trichet who was reluctant to force rates lower even at the heart of the 2008 financial crisis. For this, Trichet was seen as a steady hand doing the bidding of the fiscal hawks in the EU’s northern member states. That all changed under Draghi who is best known for his 2012 vow to do “whatever it takes” to prop up the eurozone economy, to the objection of Germany.
Draghi’s heir apparent is Christine Lagarde, who until recently was the Managing Director of the International Monetary Fund. She’s already showing she’s going to manage the bank differently from her suit-and-tie predecessors.
In testimony to EU lawmakers in Brussels on Wednesday, she promised to review the impact of Draghi’s loose monetary policy decisions. She did give Draghi some credit, saying ECB policy “continues to be positive.” But, she added, “we need to be mindful about their potential side effects and we have to take the concerns of people seriously.”
Lagarde may have merely been posturing to the ECB’s many critics from the North, but her words lifted bank stocks and the euro in mid-day trading.
More must-read stories from Fortune:
—For tech companies going public, IPO-related lawsuits are an unwanted side effect
—GE’s basic businesses are badly underperforming, by this accounting metric
—Ex-Fannie Mae CEO: Housing will be fine in the next recession
—100-year bonds? Why “ultra-long” bonds have caught on in 14 countries and counting
—What a disappointing car auction tells us about the 1%—and the economy
Don’t miss the daily Term Sheet, Fortune’s newsletter on deals and dealmakers.